Mayur Uniquoters Buy Target Price: Rs564 :: Centrum

Mayur Uniquoters

Buy

Target Price: Rs564

CMP: Rs425

Upside: 39%

Market leadership with strong fundamentals

Mayur Uniquoters Limited (Mayur) is India’s largest manufacturer of Synthetic leather with an installed capacity of 23mn metres annually (to reach 30mn by Sept’13). The addressable market size for Mayur is estimated at Rs.60-70bn. Given its profitability, strong balance sheet, free cash flows and dominant competitive position, it is in a strong position to scale up and address the opportunities before it. Mayur has been consistently adding capacities to meet the growing demand of user industries and at the same time has consciously chosen to concentrate on segments that need value addition, ensuring better margins. We initiate coverage on the stock with a Buy and price target of Rs564.

m  Synthetic Leather a Rs.60-70bn opportunity: While the domestic market size is estimated at Rs.35bn, export opportunity is estimated at Rs.30-40bn. Add to this another Rs.7bn of Chinese imports, the total addressable market for Mayur stands at Rs.40-50bn. Mayur is one of the largest players in synthetic leather with annual capacity of 23mn metres.
m  …..Operationally in a very strong position to scale up and address opportunities: Mayur has demonstrated strong and profitable volume growth over the years (Revenue/EBITDA/PAT CAGR of 37%/50%/60% over FY02-FY08) by concentrating on segments that need value addition thereby ensuring better margins. Given the strong cash flows, the company has largely funded its capex through internal accruals delivering healthy return rations (average ROE and ROCE of 37%/50% over FY02-FY08).
m  Diversified client base: Mayur supplies synthetic leather to both domestic and overseas clients. It derives more than 50% of its revenue from the footwear industry serving clients including Bata, Action, Liberty, Relaxo, VKC group (caters 70-80% of its requirements) , Paragon, among others. The company also caters to the auto OEMs (both domestic and global) as well as the replacement market. Mayur caters to all large manufacturers in automotives including Honda, Maruti, M&M, Tata, Eicher Motors and global OEMs, Ford and Chrysler. Mayur largely caters to the organized players who account for more than 90% of its revenues.
m  Export focus to ensure healthy margins: On the auto OEM export front, each of the 5-6 big OEMs, GM, Ford, Toyota, Daimler, BMW and Chrysler buy synthetic leather in excess of Rs.5-6bn each year for the developed market of Europe and US. This combined adds up to Rs.30-40bn of addressable market each year. The company added Ford and Chrysler to its client base in the last 3 years, which led to exponential growth in export revenues from the US.
m  Backward integration to reduce rejections: To improve availability of good quality knitted fabric, Mayur has integrated backward into manufacturing of knitted fabrics. The knitted plant has been operating from Sept’12 but processing is likely to commence in March’13. Backward integration is likely to help reduce the rejection rate and improve the overall margins by 0.75% to 1%.
m  Capacity expansion to meet growing demand: Mayur is putting up a fifth coating line, with a capacity of 0.6mn metres/ month and is likely to commence production from Sept’13). Post expansion, the total capacity will be 2.5mn meters/ month raising the annual capacity to 30mn meters in FY14E from 23mn in FY13.  
m  Valuation: At the CMP of Rs. 425, the stock is currently trading at 9.6x FY14E EPS of Rs.44.3 and 7.9x FY15E EPS of Rs.53.7. We initiate coverage on the stock with Buy rating and a target price of Rs.564 (based on 10.5x FY15E earnings).

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